TORONTO, ONTARIO--(Marketwired - Aug. 12, 2014) - Element Financial Corporation (TSX:EFN) ("Element" or the "Company"), one of North America's leading equipment finance companies, today reported financial results for the three-month and six-month periods ending June 30, 2014 with organic originations of $0.8 billion contributing to a 7.9 percent increase in the Company's total earning assets to $4.1 billion as at June 30, 2014 versus $3.8 billion as at March 31, 2014.

Free operating cash EPS was $0.14 for the three-month period and $0.27 for the six month period ending June 30, 2014. Based partly on the continued growth of the Company's book of railcar assets combined with the growing book of earning assets, the Company is not expected to pay cash taxes for the next twenty years. After tax adjusted operating income per share was $0.11 for the three-month period and $0.21 for the six-month period ending June 30, 2014 in line with the consensus of analyst estimates.

"Organic origination volumes were strong across each of our four business verticals in Q2 setting Element up to exceed the $3.9 billion pre-PHH origination target that we had established for 2014," said Steven Hudson, Element's Chairman and CEO. "Trinity industries recently affirmed that US$1 billion of rail car leases are expected to flow to Element in 2014 and we are aiming to exceed this target," added Mr. Hudson.

While Element's Aviation and Rail verticals have predictable annual origination volumes, these can be subject to less predictable quarter to quarter variances. The Aviation order book tends to see the strongest closings in the fourth quarter accounting for up to 40 percent of annual volumes. Rail originations, which flow to Element in large aggregated transactions, to a lesser extent can also affected by some seasonality.

The Company's US Commercial & Vendor Finance unit reported new originations of $213.3 million for the three month period ending June 30, 2014 versus $160.5 million originated in the preceding quarter. Originations from Element's Canadian Commercial & Vendor platform were $158.4 million versus $141.0 million in the previous quarter. Aviation Finance reported originations of $149.4 million in Q2, including $32.4 million of a $100 million facility approved for CargoJet during the period, versus originations of $96.2 million in the preceding quarter. Element's Fleet Management unit reported originations of $138.2 million in Q2 versus $113.4 million in the preceding quarter. The Railcar Finance vertical, which reported $131.2 million of new railcar leases in Q1 in addition to the acquisition of a US$396 million portfolio of existing railcar leases from Trinity Industries, contributed $133.2 million of new railcar leases in Q2. Organic originations, excluding acquisitions, from all four verticals for the period amounted to $793 million in Q2 for a 23 percent increase over the $642 million of organic originations in the previous period.

Financial revenue for the three-month period ending June 30, 2014 was $75.1 million or 7.91 percent of average earning assets versus $66.5 million in the previous quarter or 7.90 percent of average earning assets. Interest expense was $23.0 million for the three-month period ending June 30, 2014 or 2.42 percent of average earning assets versus $21.5 million in the previous quarter or 2.55 percent of average earning assets. Net financial income for the three-month period ending June 30, 2014 was $52.1 million for the quarter versus $45.0 million in the preceding quarter.

The Company's adjusted operating expense ratio continued to decline during Q2 to 2.19 percent of average earning assets versus 2.22 percent in the preceding quarter and is on track to achieve the post PHH integration target ratio of 2.0 percent by the end of 2014.

The Company's allowance for credit losses was $11.8 million or 0.37 percent of finance receivables as at June 30, 2014 versus $11.1 million or 0.40 percent as at March 31, 2014 resulting from slightly lower write-offs during the quarter on larger earning assets base. Delinquencies remained constant during the quarter at 0.40 percent of total finance receivables as at June 30, 2014 compared to 0.40 percent as at March 31, 2014.

At the end of the period, the Company had total available sources of capital of $2.52 billion versus $1.37 billion at the end of the preceding period as a result of the expansion of the Company's senior revolving credit facility which added $800 million in additional availability and the Company's US revolving secured borrowing facility which was increased by $350 million to accommodate the growing origination in the US Commercial and Vendor business. The Company's average financial tangible leverage ratio was 1.79:1 as at June 30, 2014 compared to 1:80 at March 31, 2014. Subsequent to the end of the quarter, on closing the acquisition of PHH Arval and the financing associated with this acquisition, Element's financial tangible leverage increased to 3.57:1 resulting from the higher debt advance rate on those specific assets and is expected to reach 4.0:1 by the end of 2014.

"The Company has reinforced its capital structure and negotiated improved terms to its senior revolving credit facility that enable Element to gain access to longer-term and lower-cost rated debt market facilities," noted Mr. Hudson. "Work is well-advanced in discussions with our rating agencies and we expect to be actionable in these rated debt markets by the fourth quarter of this year," added Mr. Hudson.

At the end of the period, the Company had 189.5 million common shares outstanding as well as 4.6 million preferred Series A shares, 5.1 million preferred Series C shares and 5.0 million preferred Series E shares outstanding.

Unaudited Interim Statements and MD&A

Element's unaudited interim financial statements and related management discussion and analysis as at and for the three-month and six-month periods ended June 30, 2014 have been filed on SEDAR (www.sedar.com).

Conference Call

A conference call to discuss the results with analysts will be held on Wednesday, August 13, 2014 at 8:00 a.m. ET. The conference call can be accessed by dialing the following numbers:

North America Toll-Free: 1-866-696-5910 passcode 8764790

Local & International: 1-416-340-2217 passcode 8764790

The call will be recorded and can be accessed until August 27, 2014 by dialing 905-694-9451 or 1-800-408-3053 and entering the pass code 9173123.

Non-IFRS Measures

The Company's unaudited condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and accounting policies adopted are in accordance with IFRS.

The Company believes that certain Non-IFRS Measures can be useful to investors because they provide a means by which investors can evaluate the Company's underlying key drivers and operating performance of the business, exclusive of certain adjustments and activities that investors may consider to be unrelated to the underlying economic performance of the business of a given period. Throughout this Press Release, management used a number of terms and ratios which do not have a standardized meaning under IFRS and are unlikely to be comparable to similar measures presented by other organizations. A full description of these measures can be found in the Management Discussion and Analysis that accompanies the financial statements for the quarter ended June 30, 2014.

The following table provide a reconciliation of non-IFRS to IFRS measures related to the Company:

After-tax adjusted operating income on average common shareholders' equity

(D-Y)/T

6.07

%

5.37

%

6.58

%

5.71

%

6.96

%

After-tax adjusted operating income on average earning assets

D/J

2.64

%

2.45

%

2.70

%

2.55

%

2.60

%

Per share information

Number of shares outstanding (including special warrants)

V

189,503

189,503

155,116

189,503

155,116

Weighted average number of shares outstanding [basic]

W

189,503

189,215

129,362

189,360

118,597

Weighted average number of shares outstanding [diluted]

X

194,808

194,114

129,362

194,698

118,597

Cumulative preferred share dividends during the period

Y

$

4,254

$

2,442

$

-

$

6,696

$

-

Net income (loss) per share [basic]

(A-Y)/W

$

0.04

$

0.07

$

(0.11

)

$

0.11

$

(0.08

)

Net income (loss) per share [diluted]

(A-Y)/X

$

0.04

$

0.07

$

(0.11

)

$

0.10

$

(0.08

)

Book value per share

S/V

$

7.22

$

7.26

$

5.67

$

7.22

$

5.67

(1) Prior period free operating cashflow per share [basic] has been restated for the change in definition applied in the current period.

Selected Financial Information and Financial Ratios

The following table summarizes key financial data to be read in conjunction with the unaudited interim condensed consolidated financial statements of the Company as at and for three months ended June 30, 2014, March 31, 2014 and June 30, 2013. Such financial statements are prepared in accordance with IFRS and are reported in Canadian dollars.

As at and for the
three months ended

As at and for the
six months ended

(in $000's for stated values, except ratios and per share amounts)

June 30, 2014
$

March 31, 2014
$

June 30, 2013
$

June 30, 2014
$

June 30, 2013
$

After tax adjusted operating income (loss) per share (basic)

0.11

0.10

0.08

0.21

0.16

Free operating cash flows per share (basic)

0.14

0.13

0.11

0.27

0.22

Financial revenue

75,077

66,500

33,960

141,577

65,798

Adjusted operating income

31,334

26,302

14,497

57,636

26,540

After tax adjusted operating income

25,055

20,655

10,451

45,710

19,095

Income/(loss) before taxes

13,731

21,082

(14,164

)

34,813

(6,912

)

Net income/(loss)

11,128

15,836

(13,882

)

26,964

(9,197

)

Total assets

5,483,252

4,234,963

2,533,370

5,483,252

2,533,370

Finance receivables, net

3,152,686

2,985,515

2,163,677

3,152,686

2,163,677

Equipment under operating leases

909,783

813,480

-

909,783

-

Total earning assets

4,062,469

3,798,995

2,163,677

4,062,469

2,163,677

New originations

792,603

1,084,014

397,896

1,876,617

694,147

Loan acquisitions

-

-

488,692

-

572,735

Secured borrowings

2,356,990

2,467,016

1,539,011

2,356,990

1,539,011

Convertible debentures

299,264

-

-

299,264

-

Total debt

2,656,254

2,467,016

1,539,011

2,656,254

1,539,011

Average finance receivables

2,993,305

2,811,352

1,546,145

2,899,728

1,471,585

Average equipment under operating leases

801,748

554,246

-

678,504

-

Average earning assets

3,795,053

3,365,598

1,546,145

3,578,232

1,471,585

Average debt outstanding

2,509,655

2,182,433

1,093,655

2,346,948

1,089,666

Number of shares outstanding (including special warrants)

189,503

189,502.737

155,115.941

189,503

155,115.941

Weighted average number of shares outstanding (including special warrants)

189,503

189,214.813

129,362.171

189,360

118,596.525

Weighted average number of shares outstanding [diluted]

194,808

194,113.733

129,362.171

194,698

118,596.525

Total shareholders' equity

1,726,331

1,610,781

879,560

1,726,331

879,560

Average common shareholders' equity

1,371,122

1,356,019

635,079

1,366,362

548,494

Net income (loss) per share [basic]

0.04

0.07

(0.11

)

0.11

(0.08

)

Net income (loss) per share [diluted]

0.04

0.07

(0.11

)

0.10

(0.08

)

The following table summarizes key operating ratios to be read in conjunction with the unaudited interim condensed consolidated financial statements of the Company as at and for the three months ended:

As at and for the
three-month periods ended

As at and for the
six months ended

June 30, 2014

March 31, 2014

June 30, 2013

June 30, 2014

June 30, 2013

Ratios

Financial leverage ratio (2)

1.54

1.53

1.75

1.54

1.75

Tangible leverage ratio (3)

1.79

1.80

2.32

1.79

2.32

Average financial leverage ratio

1.55

1.45

1.72

1.50

1.99

Allowance for credit losses as a percentage of finance receivables

0.37

%

0.37

%

0.50

%

0.37

%

0.50

%

Annualized credit loss provision as a percentage of average finance receivables

After-tax adjusted operating income on average common shareholders' equity

6.07

%

5.37

%

6.58

%

5.71

%

6.96

%

After-tax adjusted operating income on average earning assets

2.64

%

2.45

%

2.70

%

2.55

%

2.60

%

Book value per share

$

7.22

$

7.26

$

5.67

$

7.22

$

5.67

(1) All are ratios presented on an annualized basis.

(2) Financial leverage ratio is computed as total debt (the sum of secured borrowings and extendible convertible debentures) divided by total shareholders equity.

(3) Tangible leverage ratio is computed as the sum of secured borrowings, convertible debentures and accounts payable and accrued liabilities, divided by shareholders equity less goodwill and intangible assets.

Results of Operations - For the three months ended June 30, 2014, March 31, 2014 and June 30, 2013 and six months ended June 30, 2014 and June 30, 2013

The following table sets forth a summary of the Company's results of operations for the three months ended June 30, 2014, March 31, 2014 and June 30, 2013 and six months ended June 30, 2014 and June 30, 2013:

For the
three-month periods
ended

For the
six month periods ended

(in 000's for stated values, except per unit amounts)

June 30,
2014
$

March 31,
2014
$

June 30,
2013
$

June 30,
2014
$

June 30,
2013
$

Net Financial Income

Interest income

51,547

48,545

29,564

100,092

56,437

Rental revenue, net (1)

14,501

10,174

-

24,675

-

Total interest income and rental revenue, net

66,048

58,719

29,564

124,767

56,437

Interest expense

22,985

21,533

9,212

44,518

18,255

Net interest income and rental revenue, net before provision for credit losses

43,063

37,186

20,352

80,249

38,182

Provision for credit losses

3,868

2,958

1,099

6,826

2,670

Net interest income and rental revenue, net

39,195

34,228

19,253

73,423

35,512

Other revenue items

12,897

10,739

5,495

23,636

12,031

Net financial income

52,092

44,967

24,748

97,059

47,543

Operating Expenses

Salaries, wages and benefits

12,564

12,567

7,994

25,131

15,156

General and administration expenses

8,194

6,098

2,257

14,292

5,847

Share-based compensation

3,661

4,194

2,818

7,855

4,270

24,419

22,859

13,069

47,278

25,273

Business acquisition costs

Amortization of intangibles from acquisition

835

1,026

343

1,861

682

Integration costs

-

-

5,000

-

8,000

Transaction costs

13,107

-

20,500

13,107

20,500

13,942

1,026

25,843

14,968

29,182

Net income/(loss) before taxes

13,731

21,082

(14,164

)

34,813

(6,912

)

Tax expense/(recovery)

2,603

5,246

(282

)

7,849

2,285

Net income/(loss) for the period

11,128

15,836

(13,882

)

26,964

(9,197

)

Net income/(loss) per share [basic]

0.04

0.07

(0.11

)

0.11

(0.08

)

Net income/(loss) per share [diluted]

0.04

0.07

(0.11

)

0.10

(0.08

)

(1) Rental revenue, net is represents rental income earned on equipment under operating leases, less depreciation.

Overall Performance Highlights

The Company's earning assets, consisting of the Company's Finance receivables and Equipment under operating leases, have grown substantially during the period to June 30, 2014 to $4,062.5 million from $3,002.3 million reported at December 31, 2013. The growth over December 31, 2013 is primarily due to the combined effect of the total new originations for the year in the amount of $1,876.6 million, helped by the large contribution of the Trinity vendor program, net of repayments, syndication activities, amortization of equipment under operating leases and changes in foreign exchange rates of $816.4 million.

The Company is reporting a net income of $11.1 million for the three months ended June 30, 2014, compared to $(13.9) million in the comparative period ended June 30, 2013, and $15.8 million in the immediately preceding quarter ended March 31, 2014. Net income for the six month period ended June 30, 2014 was $27.0 million, compared to $(9.2) million for the comparative six month period ended June 30, 2013. Basic net income per share was $0.04 for the three-months ended June 30, 2014, compared to $(0.11) for the comparative period ended June 30, 2013 and $0.07 for the immediately preceding quarter ended March 31, 2014. Basic net income per share for the six month period ended June 30, 2014 was $0.11 versus $(0.08) for the comparative six month period ended June 30, 2013. The improved results over the comparative periods are due to the timing of business acquisition costs which do not relate to maintaining operating activities and were incurred in the previous quarter but not in the current quarter.

As indicated previously, management believes that adjusted operating income is the most appropriate operating measure of the Company's performance as it excludes non-cash items related to share-based compensation and business acquisition costs which do not relate to maintaining operating activities. For the three months ended June 30, 2014, the Company is reporting adjusted operating income of $31.3 million and after-tax adjusted operating income per share of $0.11, compared to $14.5 million in adjusted operating income or $0.08 in after tax operating income per share for the comparative three months ended June 30, 2013, and compared to $26.3 million in adjusted operating income or $0.10 in after tax operating income per share for the immediately preceding quarter ended March 31, 2014. For the six month period ended June 30, 2014, the Company is reporting adjusted operating income of $57.6 million and after-tax adjusted operating income per share of $0.21, compared to $26.5 million and $0.16 per share in the comparative six month period ended June 30, 2013.

As indicated previously, Management also believes that Free Operating Cash Flows and Free Operating Cash Flows per Share as described in the Non-IFRS Measures section of this MD&A are a key statistics to properly assess the operating performances of the Company to mostly reflect the substantial value being created by the very long deferral of cash income taxes and the investment value produced by that deferral. So, while the Company is reporting after-tax adjusted operating income per share of $0.11 and $0.21 for the three and six months ended June 30, 2014, free operating cash flows per share reaches $0.14 and $0.27 per share, respectively.

Consolidated Financial Position

The following table sets forth a summary of the Company's consolidated financial position as of the dates presented:

As at

(in 000's for stated values, except per unit amounts)

June 30,
2014
$

March 31,
2014
$

December 31,
2013
$

Cash

35,727

42,093

12,401

Restricted cash

141,035

102,066

103,550

Cash held in escrow

929,834

-

-

Finance receivables

3,152,686

2,985,515

2,763,228

Equipment under operating leases

909,783

813,480

239,055

Derivative financial instruments

525

1,129

-

Deferred tax assets

29,761

31,729

28,231

Non-portfolio assets

283,901

258,951

308,188

Total assets

5,483,252

4,234,963

3,454,653

Accounts payable and accrued liabilities

103,976

113,254

80,917

Subscription receipts escrow liability

929,834

-

-

Secured borrowings

2,356,990

2,467,016

1,893,910

Convertible debentures

299,264

-

-

Derivative financial instruments

37,437

7,747

3,014

Deferred tax liabilities

29,420

36,165

30,156

Total liabilities

3,756,921

2,624,182

2,007,997

Shareholders' equity

1,726,331

1,610,781

1,446,656

Total liabilities and shareholders' equity

5,483,252

4,234,963

3,454,653

About Element Financial Corporation

With total assets in excess of $10 billion, Element Financial Corporation is one of North America's leading equipment finance companies. Element operates across North America in four verticals of the equipment finance market - Commercial & Vendor Finance, Aviation Finance, Railcar Finance and Fleet Management.

This release includes forward-looking statements regarding Element and its business. Such statements are based on the current expectations and views of future events of Element's management. In some cases the forward-looking statements can be identified by words or phrases such as "may", "will", "expect", "plan", "anticipate", "intend", "potential", "estimate", "believe" or the negative of these terms, or other similar expressions intended to identify forward-looking statements, including, among others, statements regarding new originations in the current quarter, the anticipated pipeline of prospective transactions, and proposed purchases of portfolios of finance assets. The forward-looking events and circumstances discussed in this release may not occur and could differ materially as a result of known and unknown risk factors and uncertainties affecting Element, including risks regarding the equipment finance industry, economic factors, risks related to completion of the proposed purchases of portfolios of finance assets, and many other factors beyond the control of Element. No forward-looking statement can be guaranteed. Forward-looking statements and information by their nature are based on assumptions and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statement or information. Accordingly, readers should not place undue reliance on any forward-looking statements or information. A discussion of the material risks and assumptions associated with this outlook can be found in Element's 2013 MD&A, and 2013 Annual Information Form, all of which have been filed on SEDAR and can be accessed at www.sedar.com. Accordingly, readers should not place undue reliance on any forward-looking statements or information. Except as required by applicable securities laws, forward-looking statements speak only as of the date on which they are made and Element undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.